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Chapter 3
Rollback Procedures for Timberland

Introduction

State law imposes an additional tax on qualified timberland each time it is taken out of timber use and is no longer eligible for productivity appraisal. For the purposes of this manual, this additional tax plus accrued interest is referred to as a “rollback.”

The rollback recaptures the taxes the owner would have paid if the property had been taxed at market value each year of the preceding five-year period plus accrued interest. The rollback has two parts: (1) back taxes; and (2) accrued interest on those back taxes. The tax portion of the rollback equals the difference between the total taxes the owner actually paid in the five years preceding the change in use and the total taxes the owner would have paid on the property’s market value. The interest portion of the rollback is calculated from the dates on which the differences would have been due. A rollback is applicable only if the land was receiving productivity appraisal before its change of use.

A property owner may take land out of timber use either by ending timber operations or by diverting the property to a non-timber use. This “change of use” is the only event that triggers a rollback on timberland. If the property owner diverts only part of a timber property to a non-timber use, the rollback applies only to the changed portion.

Technically, the tax is an additional tax imposed by law on the date the cessation of timber production or change of use occurs. The rollback tax bill has its own delinquency date different from the delinquency dates of other tax bills.

What is a Change of Use?

A change of use is a physical change. The owner must stop using the land to produce timber. For example, a timber grower who has been receiving timber use appraisal may decide to stop timber operations entirely. The grower has the timber cut, does not plant new trees and shows no intention of replanting. Because the owner has stopped all timber activity, productivity appraisal will be lost and the land will incur a rollback tax.

Reduced intensity of use at the owner’s option will cause a loss of productivity appraisal. For example, if the owner decided to use the land primarily for recreational purposes and timber is no longer the land’s principal use, the land would no longer be eligible for productivity appraisal. However, as long as the land is used for some kind of timber production, a rollback will not be triggered.

Reduced intensity resulting from acts of nature and financial hardships also will not prompt a loss of timber productivity appraisal. For example, severe fires, droughts or freezes may extend the normal time land can remain out of timber production. In such cases, the land remains eligible for productivity appraisal until the owner clearly shows an intent to give up timber operations permanently.

This principle also applies when damage is done to part of a tract. If a fire destroys 500 acres of a 3,000-acre forest—forcing the owner to temporarily cease timber operations on the 500 acres—the owner should continue to receive productivity appraisal on the destroyed part of the tract. In years of severe drought, many timber-growing operations fail. Because the owner invested money in the failed operation, planting may be delayed because money to start a new operation may not be available. Here as well, the land should continue to qualify until the owner clearly shows that timber production will no longer take place on the land.

Timberland Development
Filing documents to plat land does not trigger imposition of a rollback. Only evidence that the actual use of the land has changed triggers the rollback. Plat documents provide some evidence of an intent to change use, but a physical change must occur, such as ceasing timber operations or installing utilities. Even in that case, the change of use may affect only part of the platted land. If the owner ceases timber operations on part of the platted land, only that part of the land is subject to rollback taxes.

Failure to Reapply for Productivity Appraisal
An owner who is required to reapply for productivity appraisal but who fails to do so may lose his or her eligibility, but will not suffer a rollback. Rollback requires an affirmative change of use. Failure to reapply alone does not signal an affirmative use change.

Use Changes That Do Not Trigger Rollback
Some changes to a different type of use do not trigger imposition of a rollback. Changing from timber use to an agricultural use that qualifies land for 1-d or 1-d-1 appraisal or to a use that qualifies as restricted-use timberland does not trigger a rollback. See Chapter V beginning on Page 27 for a discussion of restricted-use timberland. Property condemned, sold for right-of-way or transferred to the state or a political subdivision of the state for a public purpose use is not subject to a rollback even if its use changes. Filing a waiver of timber use appraisal with the appraisal district will not trigger a rollback if the use does not change.

Rollback is a Serious Economic Penalty
Chief appraisers must use great care in determining when a change of use triggers a rollback. The imposition of a rollback is a serious economic penalty that should not be imposed when circumstances beyond a property owner’s control cause an abnormally long but temporary suspension of timber production. Chief appraisers must keep in mind that change of use issues are often unclear and require a delicate balance between fair applications of the law and good decisions based on the facts of each situation.

Change of Use Determination

The chief appraiser determines if and when the change of use occurs and must send the owner written notice of the determination. The notice must explain the owner’s right to protest the determination.

The owner may contest the change of use decision by filing a protest with the appraisal review board within 30 days after the notice is mailed. The appraisal review board must hear a timely protest even if appraisal records have been approved for the year.

There are a number of ways for a chief appraiser to determine if a change of use has occurred. The chief appraiser may learn of a change of use from the owner’s written notification, other filed transactions (such as a sale, issuance of a building permit), field observations, or word of mouth.

Rollback Calculation

The rollback covers the five calendar years preceding the year in which the change in use occurred. For example, if the use changed in 2003, the rollback covers 2002, 2001, 2000, 1999, and 1998. The preceding years are based on the use from January through December and not on the tax collection periods.

The tax portion of the rollback is the difference between the taxes paid under productivity appraisal and the taxes that would have been paid on the market value of the land each year (Exhibit 1).

Exhibit 1
Example of Rollback Calculation
Year Actual Tax Paid, Qualified Timberland Tax That Would Have Been Paid on Market Value of Land Difference Between Actual Taxes and "Market Value" Taxes
2002 $150 $1,000 $850
2001 $125 $900 $775
2000 $100 $600 $500
1999 $90 $550 $460
1998 $80 $500 $420
Total Rollback Tax = $3,005

The assessor for each taxing unit must add 7 percent annual interest on these amounts from the date these taxes would have become due each year. The due date for each year is the date tax bills were mailed that year, which is normally October 1. Discounts for early payment do not apply to rollback taxes—discounts apply only to ordinary property taxes. The assessor must compute interest from the date the difference would have become due (normally October 1) to the date the change of use occurs.

Assuming that the use changed November 1, 2003, and that the assessor mailed tax bills on October 1 each year, the interest is calculated as shown in Exhibit 2.

Exhibit 2
Example of Rollback 5-Year Interest Calculation
The 2002 interest runs from October 1, 2002 to November 2, 2003, or 1 year and 32 days.
The formula for calculating the interest is:
$850.00 = Tax
$59.50 = $850 x .07 = one year's interest (October 1, 2002 through September 30, 2003)
$5.22 = $850 x .07 x (32 ÷ 365) = 32 days interest (October 1, 2003 through November 1, 2003
$914.72 = Total 2002 tax and interest
The 2001 interest runs from October 1, 2001 to November 1, 2003, or 2 years and 32 days.
The formula for calculating the interest is:
$775.00 = Tax
$108.50 = $775 x .07 x 2 = two year's interest (October 1, 1993 through September 30, 1995)
$4.76 = $775 x .07 x (32 ÷ 365) = 32 days interest (October 1, 1995 through November 1, 1995)
$888.26 = Total 1993 tax and interest
The 2000 interest runs from October 1, 2000 to November 1, 2003, or 3 years and 32 days.
The formula for calculating the interest is:
$500.00 = Tax
$105.00 = $500 x .07 x 3 = three year's interest (October 1, 1992 through September 30, 1995)
$3.07 = $500 x .07 x (32 ÷ 365) = 32 days interest (October 1, 1995 through November 1, 1995)
$608.07 = Total 1992 tax and interest
The 1999 interest runs from October 1, 1999 to November 1, 2003, or 4 years and 32 days.
The formula for calculating the interest is:
$460.00 = Tax
$128.80 = $460 x .07 x 4 = four year's interest (October 1, 1991 through September 30, 1995)
$2.82 = $460 x .07 x (32 ÷ 365) = 32 days interest (October 1, 1995 through November 1, 1995)
$591.62 = Total 1991 tax and interest
The 1998 interest runs from October 1, 1998 to November 1, 2003, or 5 years and 32 days.
The formula for calculating the interest is:
$420.00 = Tax
$147.00 = $420 x .07 x 5 = five year's interest (October 1, 1990 through September 30, 1995)
$2.58 = $420 x .07 x (32 ÷ 365) = 32 days interest (October 1, 1995 through November 1, 1995)
$569.58 = Total 1990 tax and interest
The rollback due amounts to $3,572.25.
(This is the sum of amounts calculated above: $914.72 + $888.26 + $608.07 + $591.62 + $569.58 = $3,572.25.)

The interest calculation for each year can also be performed using number of days only. For example, the 1998 interest would be calculated on the basis of 1,857 days (5 years – [365 x 5] + 32 days from October 1 to November 1). The interest can be computed by multiplying:

$420 x .07 x (1,857 ÷ 365) = $149.58

Interest for the other years – 1999, 2000, 2001, and 2002 – also could be computed by using days only. The resulting amounts would need to be added to the additional taxes due in each year to arrive at the total amount due.

Gaps in the Five-Year Rollback Period

The five-year rollback period may cover one or more years when the property did not qualify for timber use appraisal. If the property used in the example above had been taxed on market value in 2001, the rollback tax would have been computed for 1998, 1999, 2000, and 2002.

When is the Rollback Due?

The rollback is due when the rollback tax bill is mailed. It becomes delinquent if not paid before the February 1 that is at least 20 days after the tax bill is mailed. For example, if the rollback tax bill is mailed on January 9, 2003, it becomes delinquent on the February 1, 2003, because there are 20 days between February 1 and January 9. However, if the bill is mailed January 30, 2003, it becomes delinquent February 1, 2004. On the delinquency date, the entire amount begins to draw penalty and interest at the same rate as other delinquent taxes.

A tax lien attaches to the land on the date the use changes. The lien is imposed on behalf of all taxing units that levy taxes on the timberland. The lien covers payment of the additional tax, interest, and any penalties.

Sale of Timberland and Rollback

Sale to Private Person
The sale of timber property does not trigger a rollback tax. If land is sold and also changes use at the same time, the buyer and seller may dispute liability. Under the law, the person who has title to the property on the date the use changes is personally liable for the rollback, but the lien may be foreclosed against the land regardless of who is liable for taxes. Tax certificates on land that receives productivity appraisal must note the appraisal and state that the land may be subject to additional taxes.

Sale to Exempt Organization or Government Entity
Organizations that are exempt from ordinary property taxes are not exempt from the rollback. If qualified timberland is sold to an exempt organization and the organization continues timber use on the land, it continues to be exempt from property taxes. However, if the organization takes the property out of timber use, the rollback is triggered. In most cases, the tax lien can be enforced against the property.